It's a sign of the times if the word 'integration' reminds you more of Reliance and less of national urgencies, or even calculus. True, industrial integration, or more specifically Vertical Integration, has gained enormous currency in India over the recent past. It refers to the process of bringing different production stages of a value-chain-upstream and downstream-under common management control.

Mega-capacity manufacturer Reliance, for example, has integrated its operations 'backward' from the front-end of synthetic textiles to fibre intermediates, petrochemicals and now oil, the primary raw material for those products. State-owned ONGC, meanwhile, is looking to integrate operations forward (through stages of a different value chain), from oil exploration, to oil refining and petroleum product retailing.

Integration is typically undertaken on the logic of supply-chain coordination and input cost control, which can yield benefits of speed and profit, as time efficiency rises and what would otherwise be stage-by-stage margins add up. Often there are tax benefits too. Of course, it's not so simple, since inputs can perhaps be procured cheaper from the market. Theoretically, as Ronald Coase argued in The Theory Of The Firm, a firm chooses to integrate two verticals when the transaction cost of using the market to coordinate the activities is higher than the cost of using internal authority over them.

The theory suggests that in inefficient or closed market environments, integration is more effective. But otherwise, there could be disadvantages of 'trapped capacity'. Optimising different processes could prove devilishly difficult, requiring too vast a breadth of competencies. Product mix flexibility is low too.

A non-integrated model has it easier sourcing a hot new input to produce a hot new product. That's among the reasons that relatively market-oriented industries (like cars and computers), prefer the outsourcing model, with product assemblers relying on the market for inputs. The logic is that disaggregated abilities make for better overall efficiency, under high competition. Mutually competitive suppliers help drive down costs and raise quality. The 'Wintel' computer platform beat the Apple original as the 'standard' because the former had many assemblers-and suppliers-competing on cost, lowering prices and gaining volumes, while the latter kept its platform all to itself.